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Monday, January 5, 2015

Argentine pundits sound alarm over economic accord with China

Chinese Foreign Minister Wang Yi, left, gestures as he speaks with Argentine President Cristina Fernández de Kirchner at the Casa Rosada government palace in Buenos Aires, on Wednesday, April 23, 2014.
By Guillermo Háskel
Herald Staff

Experts warn preliminary agreement violates local legislation by including a clause transfer Chinese manpower for infrastructure works

An investment and infrastructure works deal with China that passed the Argentine Senate in the embers of last year overrides local laws, is shrouded in secrecy, fosters lack of transparency, and will have a high economic cost for beleaguered Argentina, international relations pundits say, echoing concerns vented by the opposition.

Among the main criticism, the framework agreement establishes that contracts involving Chinese companies and Chinese financing will be awarded directly, without due tender, and also will allow China to bring in its own manpower, a clause that sparked the outrage of Argentina"s building workers union UOCRA.

The Senate vote is the preliminary approval of a deal signed between Peronist President Cristina Fernández de Kirchner and visiting Chinese President Xi Jingping on July 16.

It was passed last Monday by 36 votes against 13 thanks to the majority Fernández de Kirchner"s Peronist-led Victory Front coalition in the Upper House. The bill has thus been cleared for debate in the Lower House, also controlled by the government with the help of allies.

Argentina is holding elections in October in which Fernández de Kirchner cannot seek a third straight term after having been elected in 2007 and reelected in 2011.

The administration is cornered by a deep economic crisis and a flurry of corruption cases. It is a staunch ally of South America"s left-leaning governments such as those of Venezuela and Bolivia, and is confronted by the US.

The agreement with Beijing is part of a wider "economic neo-colonialism" strategy on the part of China — now the leading economic power, although not in per capita terms — that includes challenging the US in its "home" area of influence: Latin America. Beijing has already applied that strategy in Africa through similar agreements that include mammoth public works, the experts say.

Just a few days before Xi Jingping"s visit, Russia"s President Vladimir Putin signed economic agreements with Fernández de Kirchner in Buenos Aires.

"This accord includes all kinds of secret clauses. Chapter 5 establishes that, in contracts involving Chinese companies and Chinese financing, there will be no tender, but direct award," former Argentine ambassador to France Carlos Pérez Llana told the Herald.

"Argentina"s legislation on public works demands that a tender must be called regardless of source of finance. This deal fosters lack of transparency and, without a doubt, also higher prices. China is not on the list of international transparency ratings, and neither is Argentina."

The accord reflects a Chinese strategy that takes advantage of some of Argentina"s weaknesses: foreign exchange restrictions and lack of dollars, added the ambassador of the Radical-Frepaso Alliance that crumbled in 2001 amid the country"s worst-ever meltdown.

"China has a geopolitical strategy linked to its medium- to long-term confrontation with the US. Its symbol in the region is the abhorrent channel the Chinese will build in Nicaragua to connect the Atlantic and Pacific. It is abhorrent because it will ruin Central America"s largest sweet water reservoir," Pérez Llana said.

Raúl Cuello, a former director general of the DGI tax collection agency, told the Herald: "It is always positive for Argentina to assert its position in the world, particularly when it comes to dealing with countries such as China, the US, Russia or Germany, but the principle of equality before the law must always prevail. Welcome the foreign capital and all those who want to come to trade freely under the laws that protect private property. But this doesn"t seem to be an accord between equals. The conditions under which China comes to Argentina to exploit Argentine resources and to make financial transfers connected to foreign trade, must be done under competitive, open and transparent conditions, and this is not the case."

The deal arrived to the Senate"s Foreign Relations Committee with no time for legislators to analyze it and vent disagreements, and it is clear that within Argentina"s "sui generis democratic framework", the number of votes in Congress is imposed by the government." Cuello said.

It is a usual practice in Argentina"s Congress under any government, to pass a flurry of bills, some of them quite controversial, at the brink of the New Year.

Cuello said: "This kind of conditioned loans — of which there have been past examples such as many granted by the World Bank — are not subjected to the rules of a tender. These are long-term and low-rate credits, but they will be applied to poor quality goods that Argentina will buy at a very high price. This is a negotiation with a country that "generously" loans you billions of dollars so that you buy its goods, at long terms and low rates. Beware of those who come bearing gifts."

In economic terms, not per capita terms, China is now the world"s leading economic power and, in geo-political terms, and with their single-party régime, they obviously have a enormous leverage, even larger when they face institutionally weak countries such as Argentina, Cuello said. "The relations between China and Chile present a different scenario. While in Chile there is a state, in Argentina there is none."

CHINESE MANPOWER

Another crucial issue included in the Argentine-Chinese agreement is the possibility that China may bring in its own manpower.

The issue was addressed by four sinologists who participated last Tuesday in the Palabras Más Palabras Menos TV programme on Todo Noticias, a channel belonging to Grupo Clarín media conglomerate. Fernández de Kirchner"s government is seeking to dismantle it on charges of monopoly that threatens to destabilize her. She also accuses the La Nación conservative newspaper of seeking to erode her administration.

Participating in the TV programme were Sergio Cesarín, director of the Centre of Studies on the Pacific Asia and India of the pro-government Universidad de Tres de Febrero; Fernando Vilella, Director of the Agribusiness and Food Programme of the state-run Universidad de Buenos Aires; Mariano Turzi, Coordinator of the private-run Di Tella University"s Asia-Pacific Programme; and Gustavo Girado, who holds a masters" degree in international relations.

They were asked if the concerns of the UOCRA union that the accord with China will displace local manpower from infrastructure works were well founded.

Turzi said: "Not at all. On the contrary. They are increasingly repatriating the talent they are forming abroad."

Cesarín disagreed. "I think this is an issue to be reckoned with because it is included in Chinese documents. China"s strategy for the whole of Latin America, mainly regarding investment in the area, has a specific chapter about the export of Chinese manpower. Hydraulic engineers and technicians may come, as well as unqualified manpower. This is what we have seen in Africa and several developing countries. I"m not saying that this is a ghost, but must be taken into consideration." Turzi clarified that he did not mean that China may be "planning" to invade Argentina via the transfer of manpower.

Girado said that it was "clear" that China would not replicate in Argentina the "pattern" applied in some African and Asian nations, and that the issue of manpower was not the "most pressing one. In most cases, according to the agreement, contracts or deals signed with China will not be at an advantage regarding other accords signed by Argentina with other countries. There is no stigma. This accord is fairly different from those signed with Italy and Spain in the late 1980s, in which loans were specifically earmarked to import second-rank quality goods from those countries."

Ex-ambassador Pérez Llana said that Chapter 5 of the agreement with Beijing allows China to bring in manpower "overriding the entire Argentine labour legislation.

"China"s economic strategy can be called 20th and 21st centuries" colonialism, already applied in Africa, and applied wherever it is allowed to do so. It consists in selling manufactured goods and infrastructure works. Then, they bring in people, that is, Chinese manpower.

"The first reaction took place in Ghana, an African country with a democratic tradition. It has a strong British influence and, as a consequence, a fairly strong union tradition. During the last electoral campaign some candidates made an issue of this chapter, arguing that Chinese companies function as ghettos with their own buildings and own security staff. They added that, on the basis of such accords, they are not subjected to local legislation, and that they pay miserable salaries and that, by bringing in cheap manpower, they displace the local work force," Pérez Llana said.

Cuello, former director of the DGI, said: "To analyze this accord from a strictly economic stand-point, without considering China"s geopolitical aims, would be a mistake. China has little room to develop its agriculture, and that room is declining because its population is growing, cities are developing and infrastructure demands increasing space. It has no other option but to expand abroad, to exploit the natural resources wherever it finds them. In the 21st century competition to get access to increasingly scarce resources and water will be fierce. When economic power is attach to political might, there is no doubt that that other countries will negotiate at a disadvantage. In the particular case of manpower, they come here to exploit the resources and to send manpower abroad. Nobody knows a word about which migration and labour laws will be applied to that manpower."

Vilella, from UBA, said that by 2020 China will have 20 million engineers and technicians and 600 million rural workers seeking more qualified jobs. "How will Argentina compete against that? China has a fifth of the worlds" population, and only seven percent of the land, and they are using it all."

Argentina has a population of 40 million people.

LAND

Cesarín said that China has virtually colonized Africa and bought a third of Ukraine"s farming land, and that it has attempted to do that in Argentina and Uruguay.

Cuello said: "It is not known whether the new Argentine legislation restricting foreign ownership of Argentine land will apply to China. Another question is the tax legislation to be applied to China when it exploits mining, agricultural, and sea resources and then exports them.

They have granted Argentina a 70 billion yuan swap (about US$10 billion). Those yuans are convertible into US dollars. Argentina, in turn, gives China the equivalent of that loan, in pesos. When Argentina sells goods to China, China will not pay in dollars but in Argentine pesos, and when Argentina buys products from China, it will not pay in dollars, but in the yuans China has deposited here, he said.

"This means, to some extent, a loss of Argentina"s sovereignty in terms of exports and imports and the influence of their corresponding equivalent in dollars on the balance of payments."

China"s strategy — investing in countries with natural resources — is not being applied only in Argentina, but elsewhere. Just to give an example, they are investing in Venezuela"s oil sector even if shale oil is causing a revolution in the global oil market. As the world"s largest oil importer, China is one of the main winners profiting from the oil price plunge to US$53 from US$110 per barrel in June. Contrary to what Arabs think, low prices have come stay. But shale oil continues to be competitive at about US$60 dollars."

Vilella said that by 2030, in the area of China and neighbouring countries, there will be 900 million people that will have no food if it doesn"t come from other sites. "And those sites are the US, Canada, Australia, New Zealand, Ukraine, Brazil, Argentina and the Mercosur."

He added that, in order to address the asymmetries of the accord, Argentina should tap other markets, arguing that, contrary to what happened in the 19th Century, when the country was under the orbit of the British Empire, and in the 20th Century, when it was under the influence of the US, now there are more options, "for instance, the Arab countries, whose demand of non commodities in dollars is five times largest the current Chinese market." At the same time, Vilella said, "Argentina should seek to partner with countries such as Brazil or other Mercosur fellow trade members to gain more leverage in the negotiations. China has half of the world"s pigs, and they are fed on soybeans." Turzi, from the Di Tella University, said: "Sometimes, Vilella and me joke about creating a soybean OPEC."

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